One to watch

Published on Tuesday 31 August 2010 22:54

BBA Aviation is one of the world's largest aviation services providers. During the current year, the Flight Support division has benefited from the strong recovery seen in US business jet and general aviation flying hours. With its main competitors struggling with over-leveraged balance sheets, BBA has been able to gain market share by winning a number of contracts.

Despite the recent recovery, business jet activity in North America is still over 20 per cent below the peaks seen in 2007. As the US economy recovery continues, albeit at a slower rate, Flight Support should continue to deliver strong organic growth.

The stock has suffered in recent weeks as the latest set of US economic data has disappointed investors, however the fundamental strengths of BBA's businesses remain intact. Although Net Debt/EBITDA at 2.8x is slightly higher than would be ideal, the group should be able to reduce this significantly in the upcoming year with the cashflow generated from operations. BBA is trading on an estimated 2011 PE of less than 10x and offers a dividend yield in excess of 4 per cent. We believe that this fails to reflect both an imminent upturn in the Aftermarket business and the continued strength of Flight Support.

• This article is for information and discussion purposes and does not form a recommendation by the manager to invest or otherwise.

BBA Aviation

177.2p +2.2p

Scotsman says BUY

BROKER SNAPS

Diageo

1,059p -3p

Broker says ACCUMULATE

FOLLOWING last week's "resilient" full-year results from Diageo, Charles Stanley has reiterated its "accumulate" rating on Scotland's biggest whisky maker. The broker said: "We expect the group to continue to deliver solid growth in underlying earnings and dividends, whatever shape the economic recovery takes."

Dana Petroleum

1,813p +3p

Broker says HOLD

INTERIM results last week from takeover target Dana held "few surprises" according to Citi. The broker said: "We continue to believe the 18-a-share hostile bid is a good price for the Dana assets and KNOC recently stated it had letters of intent supporting its bid from circa 49 per cent of Dana shareholders."